IRS Announces Safe Harbor for Employee Retention Credit
Angela Lawrence, Quality Control Coordinator at Klatzkin, contributed to this post.
On August 10, 2021, the IRS and the Department of the Treasury provided new guidelines regarding the Employee Retention Credit (ERC) via a safe harbor, allowing employers to exclude specific items from their gross receipts only when determining if the qualifications for the ERC are met.
The amounts that can be excluded are:
- Amount of forgiveness of a Paycheck Protection Program (PPP) loan, including second-draw PPP loans
- Shuttered Venue Operators Grants, issued under the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act
- Restaurant Revitalization Grants issued under the American Rescue Plan Act of 2021 (ARPA)
Employers are not required to apply the safe harbor, but if they do, it must be applied consistently in determining eligibility for the ERC, meaning the employer has to exclude those amounts from their gross receipts for each applicable calendar quarter after March 12, 2020, and before January 1, 2022, in which those gross receipts are relevant in determining eligibility to claim the ERC on its employment tax return (filed quarterly or annually). The safe harbor does not allow the employer to exclude these amounts from gross receipts for other federal tax purposes. The formal procedures can be found in Revenue Procedure 2021-33.
Because the PPP loan and other grants may temporarily increase an employer’s gross receipts, it could preclude them from being able to claim the ERC for a given calendar quarter. However, this safe harbor allows employers to obtain those loans and grants and still potentially be able to take advantage of the ERC.
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If you have questions about the material outlined above or need assistance claiming or maximizing the ERC, Klatzkin can help. For additional information, click here and one of our advisors will be in touch. We look forward to speaking with you soon.
©2021 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date. The content is provided for informational purposes only and does not constitute accounting, tax, or financial advice. Please consult your advisor concerning your specific situation.